Bitcoin fee markets are showing little signs of life despite the fact that Bitcoin price is down roughly 70% from its latest all-time highs and hash price – a measure of the value of the hash rate – falling by roughly the same amount.
Fees and the long-term prospects of fee income for miners are a hotly debated topic, especially during market downtrends. Bear markets are the best time to discuss fees, not only because market participants are bored and anxious, but also because this source of revenue declines sharply during these periods.
Despite the ongoing bear market, which just ended its eighth month in a row, the bitcoin fee market is still showing signs of life. This article provides an overview of some surprising bear market fee data, and discusses in the context of these numbers the likelihood of deciding whether or not Bitcoin’s future is doomed or relatively positive, despite what a growing number of critics continue to affirm. .
Bitcoin bear market fee data
Starting with absolute fee revenue, the trend in dollar-denominated fee growth remains slightly downward. However, most of the drop occurred during the final months of 2021, and rates to date have remained largely flat. The chart below shows total weekly rate revenue from the market peak in November 2021 to date with a logarithmic trend line to highlight the overall rate growth trajectory.
But the weekly quotas are not the most interesting data. Instead, looking at what percentage of mining revenue comes from fees is one of the strongest indicators of the health of the industry. A necessary condition for Bitcoin to have a healthy long-term outlook is that fee income eventually supplants a significant portion of current subsidy income, so that miners remain incentivized to contribute energy to secure the network despite the eventual disappearance of subsidies, so that hash rate does not drop to dangerously low levels.
Surprisingly, even though the bitcoin market has continued to fall for months, the percentage of daily mining revenue coming from fees has trended upwards since the beginning of the market price crash in November 2021.
Of course, fees in the 1% to 3% range are an incredibly large reduction in 10% to 20% range miners enjoyed during the heat of the previous bull market. The road to full fare revenue recovery will likely be a long one and will likely depend on a resurgence of bullish price action.
Bitcoin Fee Market Criticisms
Single-digit percentage fee revenues will surely bear the brunt of the criticism on Bitcoin as long as the current bear market persists. journalists are reporting Y opining on the perceived weaknesses of the bitcoin fee market. Some merchants Y researchers they are apparently convinced that low fees spell the death of Bitcoin. And some prominent developers are defending for changing Bitcoin to include a queue issue as a solution to the less than robust fee market.
Even after the market trend changes, some of the critics will continue to insist on their talking points as other blockchains see increased use of various applications that are not (yet?) built on Bitcoin. And some Bitcoin-adjacent builders are optimistic that a stronger fee market will come as more applications are built on Bitcoin.
But leaving aside all these conjectures, criticisms and (in some cases) generalities crazinessit is important to remember that rate data shows that at least fare revenue is cyclical, as are price trends. And mentioned earlier, bear markets (when fee revenues are low) are prime opportunities in this cycle to highlight perceived fundamental weaknesses in network fees.
The line chart below shows daily fees as a percentage of total mining revenue since the beginning of 2016. Even with a cursory glance at the visualization, it is easy to see how the top two spikes in fee revenue coincide directly with the last two. periods of the bitcoin bull market. Also, the near-bull market period during 2019 and a simultaneous increase in fee revenue is evident.
There is no indication that this cyclical rate pattern will be broken by bitcoin’s cyclical price action. The most likely short-term outcome is that critics will continue to criticize the rate data for as long as the downtrend lasts.
But most builders and investors in the Bitcoin economy realize that the current fee data is something to monitor but not panic. And the cyclically volatile fee income during the early years of Bitcoin’s second decade is not a catastrophic issue.
The future of Bitcoin fees
The Bitcoin fee market and the “security budget” (the addition revenue from fees and block subsidies) will always be meticulously analyzed and hotly debated topics. These conversations are likely to become even more contentious as alternative blockchain protocols garner significant fee revenue, sometimes even more than Bitcoin numbers, from various applications built for different use cases in the cryptocurrency industry. more espacious.
But the Bitcoin economy continues to strengthen and, despite what the strongest critics say, the current data does not give cause for long-term concern. Use of Bitcoin scaling protocols (eg, the lightning network) continues to grow, the mining sector continues building Y in expansion despite the bear market, and the general use and awareness of Bitcoin is still strongconsidering market conditions.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.